Dissolution Flashcards
What is dissolution?
Dissolution of a partnership means that the contractual relationsihp joining all of the current partners comes to an end
What governs the arrangements of dissolution within a partnership?
It should be the Partnership Agreement, but failing that the PA 1890 provides the details
Where are the events that lead to dissolution outlined?
PA 1890 s32-35 though these provisions may be excluded by agreement
How can a notice of dissolution be given, and what is a ‘partnership at will’?
A notice of dissolution may be given by any partner to others.
It need not state a reason, can have immediate effect, and need not be in writing for ‘partnership at will.’
What event causes a partnership to dissolve automatically?
Death or bankruptcy of a partner automatically terminates the partnership.
Can a partnership be dissolved by a court order, and on what grounds?
Yes, a court can order dissolution under PA 1890, s 35.
Grounds include the ‘just and equitable’ ground, which gives the court wide discretion.
Court intervention is rare, as most partnerships can be dissolved without it.
What are the circumstances under which a partnership might dissolve due to illegality?
If it is illegal to carry on the business of the partnership, the partnership will dissolve under PA 1890, s 34.
What happens upon the expiry of a fixed term in a partnership agreement?
A partnership dissolves unless the agreement provides for continuance after the fixed term. If partners continue, it becomes a partnership at will with terms consistent with that type.
Under what circumstances can a court order dissolution be sought?
A court order may be necessary when a partnership agreement prevents dissolution without unanimous agreement.
This might occur when the agreement stipulates a long fixed term or the joint lives of partners without provisions for retirement or expulsion.
What role does a charging order play in dissolution, and when might partners give notice of dissolution?
A charging order may be given if a partner’s share is charged for a private debt.
Partners have the right to give notice of dissolution if the creditor enforces the charge by obtaining a court order for the sale of the partner’s share in the assets.
How does dissolution impact the division of partnership assets?
Dissolution results in the winding up of the firm
Why is it generally inappropriate to rely solely on the Partnership Act 1890 for determining the duration and dissolution of a partnership?
Partners typically prefer to avoid the insecurity of a partnership at will and want to prevent the death or bankruptcy of one partner from causing an automatic dissolution. It is advisable for the partnership agreement to make express provisions regarding the duration and potential dissolution
What provisions should a partnership agreement include if dissolution occurs due to the departure of one partner, and the others intend to continue the partnership?
The agreement should include provisions allowing the remaining partners to purchase the share of the departing partner.
It should fix the terms of the purchase to avoid uncertainties.
What happens if the partnership agreement lacks provisions for the purchase of an outgoing partner’s share?
Parties may need to negotiate terms for purchasing the outgoing partner’s share.
Without agreement terms, it may take some time to settle a price.
If the agreement doesn’t address payment for the use of the former partner’s share since departure, the former partner is entitled to receive either 5% interest per annum on the share’s value or a court-ordered sum representing the share of profits attributable to the use of the former partner’s share (PA 1890, s 42).
How can the entitlement of the former partner to receive interest or a share of profits be excluded?
The purchase agreement can explicitly exclude the former partner’s entitlement to interest or a share of profits attributable to the use of their share (PA 1890, s 42).